FTSE higher after BoE raises rate

London Stock Exchange tumbles as pre-tax declines

LONDON (CBS.MW) -- London stocks ended higher Thursday after the Bank of England, as expected, hiked interest rates for the first time in almost four years. Financial and telecom stocks led the gainers.

The Bank of England raised interest rates 25 basis points to 3.75 percent in a bid to keep consumer debt from spiralling up. U.K. housing prices were rising at a 16.7 percent annual rate in October, lender Halifax said on Wednesday.

"Neither household spending nor the housing market have slowed by as much as the Committee expected. Underlying inflationary pressures are therefore likely to build gradually as demand strengthens and sterling's depreciation earlier this year feeds through," the central bank said in a statement.

The key financial sector was strong after the Bank of England decision, particularly as the BoE's statement didn't directly indicate more hikes were on the way. Insurer Aviva (AV) improved 2.4 percent and lender HBOS (HBOS) up 1.6 percent. House builder George Wimpey (WMPY) improved 3.4 percent.

U.S. markets on Thursday were again mixed, as a strong performance by Cisco and good jobs figures were balanced by mixed retail results and lower productivity than expected. See story on U.S. markets.

Besides the Bank of England decision, several of the FTSE 100's smaller companies also reported earnings Thursday.

Pharmacies chain Boots Group (BOOT) eased 1 percent after saying it expects gross margin in its chemists business in the second half of the year will decline. It cited the Department of Health's proposed revision to the reimbursement levels for certain generic medicines and extending price reductions to more products. In the first half of the year, Boots said sales from continuing operations rose by 4.9 to £2.5 billion and same-store sales for Boots The Chemists rose 3.6 percent. Profit before tax rose 10.7 percent to £280.5 million.

BAA (BAA), the U.K. airports operator, dipped 0.4 percent as it affirmed expectations traffic growth of 4 percent across all U.K. airports. In the first six months of the year, BAA posted a 4.3 percent decline in profit before tax to £312 million, impacted by £22 million for pensions and the effects of the Iraq War and SARS.

Man Group (EMG), the hedge fund manager and broker, turned down 1.4 percent at the end of the day. The group said underlying earnings per share rose 43 percent to 38.7 pence in the half year, driven by a 53 percent rise in net management fee income to £122.8 million and a 60 percent increase in brokerage net income to £32.3 million. Funds under management rose 21 percent to $31.5 billion at Sept. 30.

3i Group (III), the British FTSE 100-listed venture capital group, rose 2.5 percent after saying it was "well placed" to increase investments as the buy-out and capital markets see increased activity. The group said it realized proceeds of £503 million and profits of £129 million over opening valuation in the first half of the year. "Provisions were significantly lower than a year ago. But we have continued to take a cautious approach to the valuation of our early stage technology portfolio," it added.

Pub deal

British pub owner Punch Taverns (PUB) improved 14.5 percent after it unveiled a £1.193 billion offer to buy rival Pubmaster. The price includes the assumption of £1.02 billion of debt and a payment of £5 million in respect of working capital. Pubmaster has over 3,110 leased and tenanted pubs. Combined, the two would have over 7,400 pubs and become the leading U.K. pub owner. Synergies are expected over £10 million a year.

"The Pubmaster Estate provides an excellent strategic and geographic fit with our existing portfolio and nearly doubles the size of our estate." The offer for Pubmaster had been widely expected in the market," Punch said. Punch is expected to sell around 210 pubs to garner regulatory approval, The Times (of London) reported.

Acambis
ACAM
(ACM), the British biotech, advanced 2.2 percent after starting human testing of a West Nile virus vaccine.

Exchange pressure

The London Stock Exchange (LSE), Europe's largest stock market, dropped 8.1 percent after posting a 5.7 percent decline in pre-tax profits for the first six months of the year. The LSE also revealed competition regulators are looking into services pricing for listed companies and that market conditions remained tough in the quarter for companies.

"The key thing with issuer services and information services is that there are very much late cycle businesses. We do believe downward pressure on terminals will continue," LSE's Finance Director Jonathan Howell told reporters, Reuters reported.

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